ARMANI and FERRAGAMO seek new retail parteners in India

According to the Calcultta Telegraph, Italian luxury brands Salvatore Ferragamo andGiorgio Armani are considering chaning their existing local partner, a subsidiary of real estate developer DLF, and have been talking to other corporate groups and investors.

Foreign direct investment (FDI) regulations are to be blamed for the sluggish development of the Indian luxury market, permitting 51 per cent investment in single-brand retail. This restriction has forced global luxury retailers to either enter into joint ventures with local companies or forge tie-ups with a group of Indian investors. Several global retailers, however, push for alliances of short durations with call options as they anticipate that the government will eventually allow 100 per cent foreign investment in single-brand retail.

The government has already indicated that it is seriously mulling the option of allowing foreign players into the area of multi-brand retail which will allow global retail giants such as WalMart of the US and Tesco of the UK to enter India. Single-brand retailers are hoping that the investment restrictions on them will also be relaxed.

Over the last five years, several leading luxury brands have already parted ways with the partner they chose to come to India with and have formed new alliances. Several have changed partners more than twice.

The best known example of a break-up between a global brand and an Indian partner was between the Murjani family and Gucci three years ago and more recetly, with Jimmy Choo and Bottega Veneta, both the brands dumped the Murjanis and opted for Genesis Colors. There are several other examples of luxury retailers changing partners. Ermenegildo Zegna, one of the first luxury brands to set up shop in the sub-continent, has now tied up with Mukesh Ambani’s Reliance Brands, while Paul Smith chose to ally with Genesis Colors.

Even Genesis, which has several well-known luxury brands in its portfolio, was dumped by German luxury brand Aigner last year.

“The luxury brand owners are fast realising that given the size and complexity of the Indian market, the standard template of a relationship that is short term and one sided in favour of the brand owner, will not woo the deep pocketed and strategic Indian partners. The size of the prize calls for a rework of their mindset to a long term and win-win partnership model,” said Reliance Brand’s president and CEO Darshan Mehta. The company has joint ventures with brands such as Zegna, Diesel and Paul & Shark.

That may be true but it does point to the enormous interest the Indian market holds for global retailers. Selling high-value luxury products in India presents several problems starting with the acute shortage of high quality real estate to house retail outlets, high customs duties that push up retail prices and the buying habits of the Indian consumer who is terribly value-conscious.